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PREM14A
CHARTER COMMUNICATIONS, INC. /MO/ filed this Form PREM14A on 06/26/2015
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approximate $42.5 billion step-up in book basis of net assets of TWC excluding the amount attributable to goodwill. This deferred tax pro forma adjustment was determined by applying an estimated tax rate of 39%.

In contemplation of the TWC transactions, Charter has performed a preliminary analysis of the valuation allowance recorded on Charter’s preexisting deferred tax assets. Based on this analysis, certain of the deferred tax liabilities recognized in connection with the TWC transactions are expected to reverse and provide a source of future taxable income, resulting in a $3.1 billion reduction of substantially all of Charter’s preexisting valuation allowance associated with its deferred tax assets. Such reduction in Charter’s valuation allowance is reflected as a reduction to deferred tax liabilities in the pro forma balance sheet as a result of the TWC transactions and was determined by applying an estimated tax rate of 39%. The impact of the reduction in the valuation allowance is not reflected in the unaudited pro forma consolidated statements of operations as it is non-recurring.

Other deferred taxes recorded directly to equity include $163 million of estimated tax benefit on advisor fees and other transaction expenses, $46 million of excess tax benefit relating to cash paid for TWC non-employee equity awards and $36 million of tax benefit upon remeasuring Charter’s legacy deferred taxes at a 39.0% New Charter estimated tax rate compared to a 39.5% legacy Charter tax rate due to estimated changes in apportionment factors related to state income taxes. The adjustment to legacy Charter’s deferred taxes as a result of the tax rate remeasurement is not reflected in the unaudited pro forma consolidated statements of operations as it is non-recurring.

Deferred taxes recognized in connection with the TWC transactions reflect currently available information as well as estimates and assumptions made in accordance with the basis of presentation of the unaudited pro forma financial statements. The final deferred tax liability recognized in connection with the TWC transactions could be significantly different.

 

(g) Adjustment to other long-term liabilities represents the elimination of deferred liabilities assumed to have no fair value as there are no associated payment obligations or substantive performance obligations.

 

(h) Represents the elimination of Charter’s noncontrolling interest in a TWC subsidiary.

 

(i) Pro forma adjustments to controlling interest of shareholders’ equity reflects the following (in millions).

 

Elimination of TWC’s historical shareholders’ equity and accumulated other comprehensive loss

$ (8,140

Exchange of New Charter Class A common stock to TWC stockholders (including Liberty)

  28,190   

Issuance of New Charter Class A common stock to Liberty

  4,300   

Reduction in valuation allowance on Charter’s existing deferred tax assets (see Note 1(f))

  3,128   

Advisor fees and other expenses directly related to the TWC transactions

  (536

Pre-combination vesting period fair value of New Charter equity replacement awards issued to TWC employees in exchange for TWC equity awards

  607   

Other deferred taxes recorded directly to equity (see Note 1(f))

  245   
  

 

 

 
$ 27,794   
  

 

 

 

Advisor fees and other expenses directly related to the TWC transactions of $536 million are not reflected in the unaudited pro forma statements of operations and consist primarily of escrow interest, investment banking fees and legal fees.

At closing, TWC employee equity awards will be converted into equity replacement awards with respect to New Charter Class A common stock with an estimated pre-combination vesting period fair value of $607 million. The estimated fair value of the post-combination portion of the awards totaling $614 million will be amortized to stock compensation expense over the remaining vesting period of the awards.

Note 2. BHN Transactions Pro Forma Balance Sheet Adjustments

The unaudited pro forma consolidated balance sheet has been adjusted to reflect the estimated fair values of the identifiable assets acquired and liabilities assumed in the BHN transactions. The preliminary purchase price

 

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